The opinion of the court was delivered by: Leighton, District Judge.
This cause is before the court on the motion of defendant,
First Bank of Schaumburg ("First Bank"), pursuant to Fed.R.Civ.P.
12(b)(6), to strike and dismiss plaintiffs' third amended
complaint. That complaint purports to hold First Bank liable as
either a co-conspirator or as an aider and abettor in an alleged
overall scheme and conspiracy of Robert Serhant and other
defendants to defraud plaintiffs. Liability is premised on the
fact that First Bank allegedly acted in concert with Serhant, a
bank director, and Ward Weaver, President of First Bank, at the
time of the scheme, when they allegedly induced certain
plaintiffs to invest in Financial Partners by promising to loan
them money from First Bank for the express purpose of investing
in that venture.
It is true that a person or entity may be secondarily liable
under federal securities laws as an aider and abettor, a
conspirator, or a substantial participant in fraud perpetrated by
others. Lanza v. Drexel & Co., 479 F.2d 1277 (2d Cir.
1973). However, certain minimum allegations must be made in order
to sustain these claims, even under the liberal pleading
requirements of the federal rules. First Bank contends that these
minimum standards are not met in this case.
According to defendant, the complaint fails to state a claim
against it as a co-conspirator because no liability can be
imputed to it for the alleged misconduct of its president. While
Weaver, as President of First Bank, made and approved loans to
plaintiffs, the making of such loans by First Bank was not an
unlawful act. Indeed, making loans is the ordinary business of a
bank. The unlawful acts complained of here came as a result of
Weaver's individual conduct, i.e., his alleged involvement with
Serhant, and their alleged inducement of certain individuals to
invest the proceeds of First Bank's loans with Financial
Partners. A review of plaintiffs' complaint reveals no connection
between Financial Partners and First Bank which would
substantiate plaintiffs' claim that Weaver and/or Serhant were
acting on behalf of First Bank while perpetrating the alleged
fraud. The court therefore concludes that plaintiffs'
co-conspiracy theory is plainly insufficient to furnish a basis
of liability on the part of First Bank.
Additionally, First Bank challenges the sufficiency of the
aiding and abetting claim. The parties agree that, in order to
state a claim for such liability under federal securities law and
the common law, the complaint must allege the existence of an
independent fraudulent conduct, knowledge of the fraudulent
conduct, intent to further that fraud (scienter), and the giving
of substantial assistance to the primary wrongdoer. Brick v.
Dominion Mortgage & Realty Trust, 442 F. Supp. 283, 307
(W.D.N.Y. 1977). The court finds that the complaint is defective
in that it fails to allege scienter and substantial assistance in
the fraud, essential elements of the claim. Furthermore,
plaintiffs have not alleged that defendant knew or should have
known of the fraud. What is alleged is that First Bank knew or
should have known of the material facts showing existence of the
scheme. Such an allegation will not suffice to hold a defendant
under an aiding and abetting theory. Stern v. American
Bankshares Corporation, 429 F. Supp. 818, 826 (E.D.Wis.
The court therefore concludes that plaintiffs' allegations are
insufficient to hold First Bank liable for the actions of its
president in approving loans which were then invested by
plaintiffs in an allegedly fraudulent scheme. This result
comports with relevant law, and with common sense. Any other
standard would open banks to wholesale liability for ill-advised
investments of its customers. Accordingly, the motion of
defendant to strike and dismiss plaintiffs' third amended
complaint is granted.
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